Among all the factors impacting the direction of economic globalization, the drastic escalation and unfolding trade disputes are the biggest variable. The trade wars provoked by the Trump administration have impaired trade and investment liberalization, undermining the systems and rules related to economic globalization. 

Such pressure has compelled many countries to pick up the pace in bilateral economic cooperation or sub-regional integration, such as the US-EU zero-tariff negotiation, the Japan-EU Economic Partnership Agreement (EPA), and the likely arrangement of a zero-tariff deal between the United States and Japan. 

In this context, the Chinese government needs to retune its strategy in free trade zones, coping with the severe, long-term challenges in trade rifts and continuous development of globalization and regional economic integration.

The current adjustment in global and regional economic patterns shows several new features. 

First, signing the FTA has become a worldwide trend and consensus on promoting bilateral and regional multilateral cooperation. Developed economies regard FTA negotiations as a key tool for achieving diplomatic and geopolitical goals and dominating new global rules, while emerging economies attached more importance to the FTA construction to promote their global competitiveness. 

Second, the scope of trade and investment liberalization has extended from traditional trade and market access to service sectors and market standards and rules. After the US withdrew from Trans-Pacific Partnership (TPP), the European Union and Japan became the major accelerator to high-level regional trade liberalization. The US has turned to bilateral agreements, and its negotiations with Europe and Japan on zero-tariff deal were facilitated. 

Third, the regional integration in East Asia saw a breakthrough. Negotiations on China-Japan-South Korea FTZ and Regional Comprehensive Economic Partnership (RCEP) have come to a critical stage. The goal of trade liberalization has been largely elevated. 

The new round of regional economic integration brought new opportunities for China. In addition to the China-Japan-South Korea FTZ and RCEP negotiations, more bilateral FTAs have been under construction within the framework of Belt and Road Initiative. These mechanisms will conduce to upgrading China’s FTA strategy and solidifying fruits of East Asian cooperation. What’s more, substantial progress has been made in various bilateral, regional and sub-regional cooperation, helping China avoid negative impact from other integration arrangements. 

China, meanwhile, is facing challenges in participating in the new round of trade and investment liberalization. There is still a gap compared with that of other major economies in terms of the number of FTA partners, standards, etc. For instance, China has more strict market access in service sectors like finance, telecommunication, culture, health and education, in which developed countries have considerable advantages. In addition, some issues have become more urgent as regional negotiations continued, such as government procurement, intellectual property rights, State-owned enterprises, labor standards and environmental protection. 

Therefore it’s of paramount importance for China to upgrade its FTA strategy to promote the economic restructure and the level of opening up.

First, the focus should be put on upgrading the FTAs with South Korea and ASEAN, so as to boost other regional multilateral negotiations. In case the RCEP negotiations were not conducted smoothly, China should actively turn for RCEP-1 and make full preparation for that. 

Second, high-level intergovernmental consultations need strengthening in light of the possibility of launching bilateral institutional cooperation between China and major economies. At the same time, the possibility of re-initiating TPP should be considered and researched. 

Third, we need accelerate the construction of closer economic ties between the Chinese mainland, Hong Kong, Macao and Taiwan. FTZ building in BRICS countries should be promoted to help emerging economies play a more important role in the world. 

More measures should be taken to realizing the aforementioned strategic upgrading. First, provide institutional and policy guarantees for building high-level FTZs by deepening reform on economic systems. 

Second, experience in building FTZs and free trade ports can be used in negotiations on lifting standards of FTA and opening service industry. 

Third, formulate feasible plans to make negotiation strategy more targeted and practical, and strengthen coordination between sectors of a negotiation team. 

Fourth, adjust strategies in tandem with new issues and emerging risks, and different characteristics of dialogue partners should be fully considered. 

Last but not least, pay close attention to the direction of industrial restructuring and prepare for possible compensation plans and transitional periods, so to minimize the cost of opening market and structure adjustment.

Zhao Jinping is a research fellow and former director of the Research Department of Foreign Economic Relations, Development Research Center of the State Council (DRC). The views expressed do not necessarily reflect those of China Watch.

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